Reflections On the Mortgage Crisis

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The 2000s will be remembered for many things: Y2K, Obama and the Beer Summit and the decade of the worst global economic recession ever. I’m not sure about you, but these aren’t necessarily the kinds of memories I’d like to hand down to my children or my children’s children, if you know what I mean. Of course, it’s better than Woodstock, but the ramifications of what has transpired over the past 10 years in the financial industry will haunt us long after the smoke clears and cold, hard sobriety sets in.

Take the mortgage and housing industry for instance. Just a few years ago, it seemed like getting a mortgage was as easy as…well, getting stoned. Lenders lined the streets, holding out their mortgage products, tantalizing us with their pretty colors, whispering into our ears that so long as we paid just this tiny little payment every month, we could all live in a house like movie stars. All that mattered was that you had a job, had the best credit cards that allowed you generous credit lines, and maybe even an emergency fund in a high yield savings account you can tap for collateral or a small down payment (if at all).

The goal was simple: get as many people hooked as you can before the bottom fell out. And they did. People came out of the woodwork and out from under the rocks they had been living under for years at the thought of owning their own homes. Adjustable rate mortgage? Okay. Interest only loans? I’m game, but only if I can buy that $300,000 house I saw on the Internet for only $200 a month. Besides, most of us had no idea what all that stuff meant anyway. The way we figured it, it’s best to leave the mortgage mumbo-jumbo to the professionals and sign where we’re told to, right? It’s the lenders’ job to keep us out of hot water.

But then the housing bubble burst, thanks to Hurricane Katrina, an expensive war on terrorism, and a few other little unexpected events sprinkled in for good measure. We started losing our jobs. We couldn’t afford gas. Food prices started to escalate and suddenly, we had to make a choice between heating our homes and feeding our families. And that little monthly mortgage payment starts to inch up too, thanks to interest rates that were out of control. One by one we started losing our homes to the banks.

Foreclosures started to trickle and then to gush and ultimately started to bleed the financial industry dry. All of those lenders who had stayed away from subprime lending were breathing a nervous sigh of relief, along with those that were smart enough to originate their risky mortgages and then sell it to someone else. For those who hadn’t, the bankruptcy and failure were real possibilities. Hundreds of small banks failed and many more struggled. Larger bank failures threatened the very existence of the modern economic world as we knew it. Not knowing what else to do, the government started throwing taxpayer money at them in hopes of staving off the inevitable.

And then came the indignation from us, the homeowners who wanted to know where our bailout was. We’d made some bad decisions, but it wasn’t our fault. We didn’t know what an alt-a mortgage or a 3-year ARM was. The lender didn’t tell me that I owed the balance of my mortgage at the end of 5 years. They were supposed to tell us. It’s the greedy financial execs fault. They tricked us…or did they?

Common sense should‘ve told us how big of a house we could afford. Common sense should’ve told us that there’s no way that a $300,000 house could possible yield a $200 a month payment without some serious repercussions on the other side. And yet, we took to the streets, pointing our collective fingers at the financial giants claiming that it was the job of the lenders to protect us from ourselves, just like they always had, by denying us the opportunity to get a personal loan or obtain a mortgage we have no business getting in the first place, right? The truth of the matter was, we wanted to get bailed out, too. If the government could bail out Wall Street, how about sending a little aid down here to the common folk on Main Street?

And then the government did offer a lifeline of sorts. They waved some money around at the mortgage lenders and made them a deal. Stop foreclosing on homes, offer your borrowers a chance to restructure their mortgages with debt consolidation loans, and get some cash for your troubles. Should have been a win-win, right? Wrong. First of all, most of us couldn’t afford the mortgages we took out back when there were two incomes. Now that there are many households with only one income, or worse yet, nothing but unemployment, any mortgage payment is simply too much. Second, the home loan modification program would only allow those of us on the brink of foreclosure any relief. What about those of us who had been responsible and only took out a mortgage we could afford and, through no fault of our own, ended up with a house that can’t be refinanced due to limited income and bottomed out home values?

In the end, many hundreds of thousands of us were forced from homes we had the luxury of enjoying for a few years at least. We’ll tell our children of the days when we lived in giant houses that we couldn’t really afford, and at the time it was okay, because everyone else was doing it, too. In hind sight, it probably wasn’t a really good idea, but we dusted ourselves off, just like after Woodstock, a little more mature and a lot savvier and look toward the future and not back at the past. Sure, there were a few casualties of the era, but in time, we’ll look back on the experience and the bitterness will be replaced with a hard earned life lesson that will be passed down from generation to generation. We’ll teach our children to rely on themselves and not the government, or lenders, or even our neighbors to bail them out when they make foolish decisions. We’ll teach them that it’s no one’s fault but our own if we get in over our heads because we chose to ignore personal responsibility in favor of greed. Consequences are an inevitable part of life and making bad decisions begets unpleasant consequences. Our children will grow up to make better decisions than we did, learning from our mistakes and creating a better world because of it.